Two real pension eye openers

asavory

I feel like I need to share this information. So far I have shared this story with the MSE site and the Pensions Advisory Service, but with no response so far.

My mother is 86 years old. She has a small pension from years of working for Avon Rubber Company, and also a spouses pension from my deceased father who also worked for Avon. The combined pension pot is not worth much (about £15000) but it gives her an income of £190 per month. She relies on this money as she still lives on her own and is not that well off.

Back in the Summer she started getting letters from the Avon pension administrators, Mercer, offering 'under the new pension rules' the opportunity to take the remainder of her pension pot as a lump sum. A lot of pensioners in the area received the same letter (they were a big employer) and everyone except my mother believed that they had no choice to comply with the letter, claim the lump sum, and lose their pension. This has already happened. My mother would have done the same if she hadn't talked to me. We discussed it and decided that it would be better for her peace of mind to continue taking the pension.

Since then she has received two more letters from Mercer (after having to complete a lengthy questionnaire). The latest asks her to justify why she wants to remain in the pension scheme. The trustees clearly believe that, under the new rules, they have the right to remove pensioners from company pension schemes in order to save money, whether they want to or not. Such coercion has clearly already worked with the majority of pensioners that my mother knows. Apart from being unethical and underhand, is this legal? This is causing elderly and infirm people who paid into this pension for most of their working life no end of worry and stress, and in most cases leaving them without an income they were guaranteed for life. I have referred this to the Pensions Advisory Service.

So, eye-opener no.1: Trustees can kick you off a pension scheme that you have contributed to all your working life, whether you like it or not.

While investigating the effect of this on my mother's finances, I discovered something even more shocking. The company pensions are worth about £200 to my mother. If she didn't have this pension (and no savings) she would receive additional pension credit of...£300. Yes, that's right. If she had spent all her money and neither of my parents contributed to a pension scheme she would actually be better off! Incredible. Even if she had no savings the pension credit would equal the £200, the value of her company pension (the current rules heavily penalise anyone with savings - they want you to spend it!).

Eye-opener no.2: There is a pensions trap here nobody is talking about. If you are expecting only a modest income from a company or personal pension, currently it's not worth it. You'd be better off putting your money elsewhere or just spend it. The state will pay you extra anyway!

The problem of course is none of us know what the rules will be when we retire. I'd be interested to hear of any other similar stories.

Fruit_and_Nut_Case

Without seeing a copy of the letters it is impossible to tell if your interpretation is correct. What they want to do and what they can do may not be identical.

asavory

The letters are with the PAS. However, the strongest words I've got from them so far is that they 'shouldn't' close my mothers pension forcefully. Nobody has told me they can't.

asavory

Anyway, most pensioners won't put up a fight, so they win in 90% of the cases easily.

McKneff

We are in the same boat re Pension Credit.


We saved, we scrimped to buy our own home. I have around 180 a month pension, my OH has the princely sum of £1k per year. OH has a full state pension and I have only 60%




So we don't qualify for pension credit, if we had spent it, or just blown it, and stayed in the council house we had, we would be probably better off. But on the other hand.....I am quite pround of what we have achieved and I am responsible for feeding me and mine not getting handouts from the government.
And don't get me started on the Married Womans Stamp. that's whole new thread....

kidmugsy

asavory wrote: »

Back in the Summer she started getting letters from the Avon pension administrators, Mercer, offering 'under the new pension rules' the opportunity to take the remainder of her pension pot as a lump sum.

"Offering an opportunity" clearly means it's not compulsory. When M&S offer me an opportunity to buy one of their excellent pork pies, they are not forcing it on me.

asavory wrote: »

The latest asks her to justify why she wants to remain in the pension scheme.

If true, that's outrageous; if true. That's why I want to see the wording.

asavory wrote: »

The trustees clearly believe that, under the new rules, they have the right to remove pensioners from company pension schemes in order to save money, whether they want to or not.

Well they can't. Most probably you've misunderstood their literature. Either that or they are misbehaving badly. Show us what they actually said.

asavory wrote: »

While investigating the effect of this on my mother's finances, I discovered something even more shocking. ... If she had spent all her money and neither of my parents contributed to a pension scheme she would actually be better off! Incredible.

You are easily shocked; it's ancient news. The 1945 government decided to reform the old welfare state in this general direction. It, or things like it, have been part of the welfare state ever since. So, for probably all of your life, then. Heavens, you may even have voted for it, or its like, yourself.

Linton

Surely the new pension rules dont affect non-drawdown pensions in payment. Is it possible that she has some pension that she never claimed? Perhaps a small one. In which case a lump sum offer may well be appropriate or the pension may disappear in fees.

dunstonh

If true, that's outrageous; if true. That's why I want to see the wording.

I suspect its not quite as strongly worded as made out. I could be wrong but I suspect its more backside covering by the administrator to protect themselves from future complaints. Instead of having a box ticked (or whatever) saying they want to remain in the scheme, they have a box and a reason given by the pension holder in their own words. Mercer act in regulated financial services as well as pension administration and would know on that side that "why" is strong documentation.

So, if they get a complaint later on from the children (who realise that they could have inherited the lump sum but will get nothing because of the choice to keep income), Mercer can turn around and say that they were told by the pension holder they wanted to keep the income and for the reasons given.

While investigating the effect of this on my mother's finances, I discovered something even more shocking. The company pensions are worth about £200 to my mother. If she didn't have this pension (and no savings) she would receive additional pension credit of...£300. Yes, that's right. If she had spent all her money and neither of my parents contributed to a pension scheme she would actually be better off! Incredible. Even if she had no savings the pension credit would equal the £200, the value of her company pension (the current rules heavily penalise anyone with savings - they want you to spend it!).

The current rules dont actually penalise people with savings that much. They used to a lot more in the past but currently, its not quite a £1 for £1 reduction. Under the new state pension rules, there will be less benefits although some will still exist. As you point out, only £100 of that pension credit is income related. So, why give up £200 to be paid £100?

You are looking at it too simply though. She would have to spend her retirement life with virtually no savings and breadline income and be at the whim of benefits which could be taken away or reduced. She is not just getting this £200pm indexed income. She also got the pension lump sum when she retired. So, whatever she bought with that would not exist. Its not a fun lifestyle for retirement when you live on benefits.

asavory

I'm not surprised most of you don't believe me. I'll post extracts from the actual letters and from my conversation with Mercer later (I recorded it). In the meantime here's a Sunday Times article talking about the Avon Pension Scheme: http /cda.thesundaytimes.co.uk/sto/business/money/pensions/article1438753.ece

xylophone

From the ST article cited:-

"Mercer said the budget changes allowed occupational pension scheme trustees to pay members’ benefits in full if their pots were worth less than £10,000. It added that the scheme’s rules did “not require member consent prior to the trustee converting benefits”.

The Budget Pension information says:-

We’re increasing the size of a small pension pot that you can take as a lump sum,regardless of your total pension wealth, from £2k to £10k.


It seems to me that the intention of the budget changes was to increase flexibility for the pensioner, rather than to allow the Trustees to shuffle off their responsibilities!

From the Pensions Regulator:-

http://www.thepensionsregulator.gov.uk/trustees/role-trustee.aspx

"Your first duty must be to the scheme beneficiaries, and you must always act in their best interests. A beneficiary is anyone who is entitled to, or who might receive, a benefit from the scheme, now or in the future."

The DWP response:-

The Department for Work and Pensions said: “The offer of a lump sum for those with very small pension pots is often welcomed. But we will take action if we find schemes are forcing members into options which are not in their best interests.”

If the Trustees of the Scheme are abusing their powers then the DWP and the Pensions Regulator should be so advised without delay?

And in the OP's place, I would ask for a copy of the rules of the Scheme although from what he has said, his mother has not actually been told that she must take a lump sum?

kidmugsy

If I were 86 and had no other income beyond the state pension, I think I'd value a nice steady monthly income until death rather more than a lump sum that I might exhaust before I die. If, on the other hand, I were 65 and had ample other income I would probably welcome the tidying-up of a small pension. But in neither case do I see justification for the pension scheme forcing it on me. "This is causing elderly and infirm people who paid into this pension for most of their working life no end of worry and stress" sounds spot on to me. Even if it turns out that they have misinterpreted the documents, the ruddy things should be phrased with care, with a view to avoiding alarm and distress.

Two questions for anyone who might know: (i) How would the lump sum be taxed? (ii) How would the lump sum affect state doles? For example, would receiving the lump sum mean "she would receive additional pension credit of...£300"?